The economic liberalization that began in China in 1979 had an almost immediate impact. Political economists often cite the success of China’s market-oriented transformation as evidence of the advantages of gradual economic reform. Actually, though, the early changes unleashed the productive potential of ordinary people with astonishing speed. This was especially true in the countryside, where the overwhelming majority of the Chinese lived. By October 1981, 45 percent of the agricultural production teams in China had gone over to the household-responsibility system. By the end of 1983, 98 percent of all the teams in the country (equaling 94 percent of the farming households) had adopted the new approach.1 Hundreds of millions of people were directly affected. If anything qualifies as economic “shock therapy,” surely this was it. But it was a form of therapy that was warmly welcomed by its intended patients.
To be sure, these farmers did not actually own the land they were working. But they could do much of their work as if they did. No longer did peasants have to obey the strictures imposed upon them by distant bureaucrats. Production of grain soared by stunning margins in the space of just a few years. This reflected, perhaps, the priorities established by China’s central planners, who for years had emphasized grain to the virtual exclusion of all other crops. But there were other dramatic manifestations of the new policy. Now farmers could grow whatever made sense under their own economic and climatic conditions. Suddenly, a whole range of other foodstuffs, long neglected, became available in the private markets that proliferated across China. Farmers in Guangdong now grew sugarcane in addition to rice. Northerners cultivated not only wheat but also cabbage and eggplant, mushrooms and beets. “Sideline occupations” like fish farming increased the range of available products and boosted farmers’ revenues. Favored meats like pork or goose, once an unthinkable luxury for most Chinese, became widely available. Within the course of a single decade, China transformed itself from a country where millions of its citizens lived on the verge of starvation to one where its citizens could easily feed themselves and still have plenty of food left over for export.
Du Runsheng—a leading reformer who first proposed returning to the household-responsibility system back in 1978, when it still seemed nearly unthinkable—watched with satisfaction as peasants took advantage of the new freedoms offered by the reforms in the countryside. In 1982 he toured a farming region in Fujian Province.2 He visited a private poultry business that was producing 1.2 million chickens per year. The founding capital of the company was the modest sum of 28,000 yuan, contributed by the fourteen original shareholders. Nearby was a state farm that had built its own chicken hatchery, using several hundred thousand yuan in state funds. It produced only 500,000 chickens per year.3 This sort of productivity gap was characteristic, and it soon doomed the states overall control of agriculture.
The unloved People’s Communes, the rural cooperatives established by Mao in the Great Leap Forward, melted away like spring snow in the course of a few short years, following the pattern established in Sichuan Province in 1979. Farmers focused on cultivating the agricultural land that was split off from the old collective farms, while the new “townships”—the village administrations that emerged from the old communes—became something akin to business incubators, spinning off their old assets into new public-private companies. These were the Town and Village Enterprises (TVEs) that produced everything from bicycles to bathtubs, giving an enormous boost to prosperity in rural communities. This enormous engine of rural job creation lifted hundreds of millions of people out of poverty, and as such it may well qualify as the biggest employment scheme in human history. Foreigners sometimes cited the TVEs as a triumph of Communist Party statism, since their property formally belonged to the townships. But it is probably more accurate to say that the local officials who controlled the companies disposed of their assets just as if they owned them; in fact, therefore, the TVEs were private in all but name.4 In any case, the dissolution of the communes paved the way for an astonishing flowering of grassroots commerce.
The Special Economic Zones took longer to have an impact. But this lay in the nature of their economic mission. The SEZs—modeled on the “Export Processing Zones” in other countries—were at first aimed entirely at production for foreign markets. (For a while in 1979–1980, they were officially referred to as “Special Export Zones.”) As overseas investors piled in, the amount of goods manufactured in the zones steadily climbed. Local governments benefited in the form of taxes and administrative fees, while local people drew attractive wages—both of which stimulated further growth. Initially, though, relatively little of the SEZ production found its way into the domestic Chinese market.
Deng and other Chinese leaders had made a point of setting up the SEZs in relatively undeveloped areas, far from the People’s Republic of China’s existing industrial centers. This was entirely intentional: the aim was to buffer possible ideological contagion stemming from the influx of foreigners. The first zones accordingly started with very little in the way of infrastructure. Shenzhen had just five miles of paved road in 1979. Its entire public transportation network at the time consisted of a dozen buses and cars for a population of some three hundred thousand. As a result, it took some time before the capacity of the zone could be ramped up. Most of the population persisted in farming or fishing for years after the zone was established.5 High fences were erected around all of the zones to ensure that dangerous ideas did not percolate through to adjacent counties.6
This gradually changed as the reform process continued. Deng—with his characteristic farsightedness—envisioned the SEZs not only as conduits for foreign investment but also as channels for the transmission of modern management techniques and new technologies. As the zones prospered and expanded, they increasingly fulfilled both roles. Hong Kong investors who set up hotels, for example, went to great pains to train their mainland staff to international standards of cleanliness and service. Local people who could afford it flocked to the restaurants, giving local entrepreneurs incentives to follow suit by embracing similar standards in their own businesses. A similar process of osmosis applied to manufacturing. Although foreign investors usually ran their own factories, they needed plenty of local staffers to keep the assembly lines running. Countless Chinese middle managers who learned their jobs on the shop floors in SEZs later went on to apply what they had learned to businesses of their own.
In the first years, the contribution made by the zones to China’s foreign exchange earnings was relatively modest—even though this was one of the stated reasons for establishing them. Foreign-owned firms were allowed to operate in the zones only as of September 1983. The overwhelming majority of Chinese had little contact with them. The number of people who worked in the zones in the first five years was relatively insignificant, and most of the goods produced were designated for export, so ordinary Chinese had little inkling of what was going on there.7
Yet growth in Shenzhen, in particular, was fast. From 1981 to 1984, the local economy expanded by an astonishing 75 percent per year. Between 1981 and 1993, the Chinese economy grew at an annual rate of 9.6 percent; Shenzhen’s growth during the same period was an extraordinary 40 percent.8 Chinese began to use the terms Shenzhen speed and Shenzhen efficiency as benchmarks for development. Later in the decade, the government in Beijing began to speak of the Special Economic Zones as “laboratories” for economic reform, and that political signal spurred a new influx of foreign investment. Outside capital now began to flood in, much of it from Hong Kong.9 The initial capital investments in infrastructure in the zones had come from the state, but now the authorities increasingly left that to the private sector.
The zones remained controversial for many years. It was perhaps to be expected that, when the conservative backlash against economic liberalization came, it was intimately connected with the zones. Reports of corruption—the inevitable side effect of a system that “quarantined” islands of capitalism from the rest of a still Communist country—gave the opponents of reform just the ammunition they needed. One of the most famous scandals involved Hainan Island, which received special status as an open trade zone early in the 1980s. A cabal of businessmen and local officials exploited ambiguities in the regulations to import large quantities of cars and consumer goods at artificially low prices, which they then resold on the mainland at an enormous profit. (The total amount of the goods involved was valued at $1.5 billion.)10 Such cases fueled the calls for what was called “readjustment,” policies to establish the priority of planning and rein in “uncontrolled” growth.
The foes of Deng’s reforms soon even included some of his erstwhile allies. One of the most prominent opponents of economic reform was Chen Yun, the party heavyweight who had buoyed up the Deng camp at the 1978 conferences with his clarion calls for a reckoning with the Maoists. As liberalization accelerated on the economic front in the early 1980s, however, Chen’s Communist instincts asserted themselves with full force, and he found himself bucking plans to give greater freedom to the private sector, which he associated with exploitation and inequality. Chen Yun—widely admired for his rectitude and apparent incorruptibility—belonged, along with Deng, to the elite group of party elders (sometimes referred to as the “Eight Immortals”) who had suffered from Mao’s persecutions in the 1960s and 1970s. These were men who were willing to tolerate a certain degree of economic experimentation but who also worried that wide-ranging reforms would undermine Communist Party rule itself. Opposition from such prominent quarters compelled reformers to tread carefully. When describing their aspirations, they preferred to avoid the phrase market economy. Their preferred euphemism was commodity economy.
It is easy to look askance at the enemies of reform from the vantage point of today, when the extraordinary power and prosperity that Deng’s course has brought to China are manifest. But this outcome was not quite so clear to observers in the 1980s. The transfiguration of the economy brought unheralded opportunities, but it also produced dislocation, turmoil, and dizzying social change. While some sectors of the economy boomed, others collapsed, requiring huge injections of investment from the state in order to prevent mass layoffs; unemployment went up sharply in some parts of the country nonetheless. The rising prosperity of the industrial areas along the coasts attracted huge numbers of job-seeking immigrants from the interior, setting off what would ultimately become the largest peacetime migration in history. The rise of a new class of business owners and managers transformed the social hierarchy. The Communist Party was at first unsure whether to welcome them into its ranks or to hold them at arm’s length.
In keeping with the demands of a new economy, the country’s legal system had to be completely reengineered. Growing numbers of foreigners appeared on the streets, and knowledge of the outside world proliferated. Blue and gray Mao suits gave way to a diverse global wardrobe. Western fast food changed eating habits. Until the end of the 1970s, the average Chinese had dreamed of the Four Big Things: a sewing machine, a bicycle, a wristwatch, and a radio. In the 1980s, the list went upmarket. Now the aspirational possessions were a refrigerator, a TV set, a rice cooker, and a washing machine.
The career of Hu Yaobang offers a case study in the challenges that China faced when it came to reconciling its peculiar mix of economic liberalization and political immobility. Hu—the man who had brought up the sensitive issue of agricultural reform at the 1978 Central Party Work Conference, like a “finger pushing through a paper window”—enjoyed a steep ascent in the early years of the reform period. He was among the most determined supporters of economic reform. As the Communist Party organization chief in the late 1970s, he had also pushed aggressively for the rehabilitation of countless victims of the Cultural Revolution. It was an effort that had earned him not only plenty of moral credibility but also a bank vault’s worth of valuable political capital that he could draw upon in the years to come.
In 1980, thanks to Deng’s patronage, Hu became general secretary of the party and also attained membership in the Politburo Standing Committee, the small group of men who effectively ran China. Hu’s record as an arch-reformer cemented his status as Deng’s most important deputy. Hu pushed hard for economic liberalization and personally oversaw measures that gave industrial enterprises more autonomy and allowed them to retain more profits for themselves. He also presided over agricultural reforms that extended the term farmers were allowed to rent land from the state, thus reinforcing the principle of private initiative. His term also saw an expansion of the Special Economic Zones to encompass even greater areas along the coast.
But Hu’s success also contained the seeds of his own destruction. His mercurial personality alienated Deng and created friction with fellow reformer Zhao Ziyang. In the mid-1980s, meanwhile, the release of entrepreneurial energies meant that the economy began to overheat. The gradual abolition of price controls on certain goods—the inevitable consequence of the shift away from a centrally planned economy—meant that inflation soared. Inequality deepened. Officials as well as members of the new business class often proved unwilling to wait for wealth, and corruption rose correspondingly. And Hu’s insistence on the need for political reform to accompany economic restructuring went decidedly too far for a Communist Party leadership that was growing nervous about its hold on power in a tumultuous period of change. In 1987 he was forced to resign his post as general secretary of the party and retired, disappearing into the limbo that invariably envelops all Chinese leaders who fall into official disfavor.
Then came the news, in April 1989, that Hu had died of a heart attack. The party leadership initially balked at affording him a state funeral but soon relented—perhaps recalling the Tiananmen Incident of 1976, when similar reluctance to acknowledge the death of Zhou Enlai had prompted popular demonstrations against the Maoists. If so, those fears proved legitimate. In 1989, just as had been the case with Zhou, the perception of a posthumous party snub angered Hu’s supporters, and soon groups of students were using his death as a rallying point for protests against corruption and rising inflation. The students believed that the best way to remedy such social ills was to curb the power of the party by establishing more democratic institutions (though the protesters were often vague about how this was to be accomplished in practice).
The party, which had rather different ideas on this score, harshly condemned the protests, which prompted them to spread beyond Beijing to dozens of other cities around China. In some places, workers joined the students, setting off alarm bells in the minds of party leaders who were especially sensitive to the ideological threat posed by anti-Communist proletarians. Some of the students camped out on Tiananmen Square started a hunger strike to press their demands for more democracy. Various party stalwarts paid visits to the students, warning them to desist. The visitors included, toward the end, Zhao Ziyang himself, who pleaded with them to put an end to the protests. Mikhail Gorbachev came to Beijing, and his example inflamed the malcontents: why couldn’t China implement its own brand of perestroika?
How it all ended is known. In the early hours of June 4, 1989, the Communist Party declared martial law and sent in the troops. We may never know the precise casualties, but it seems safe to say that hundreds of people were killed in central Beijing that day. Even more obscure is the outcome in dozens of other Chinese cities where similar protests were suppressed at the same time. The chairman of the Central Military Commission, the man who issued the command for the crackdown, was none other than Deng Xiaoping. In 1977 those who yearned for an end to Maoist turmoil had greeted Deng’s return to power by hanging up small bottles over Beijing’s streets, a play on his name (xiaoping can mean “small bottle”). In 1989 students confined to their dormitory buildings smashed bottles as an expression of their anger and frustration.11
Deng was not shy about giving the order. Later, in an address to People’s Liberation Army troops, he hailed the party’s actions in the most uncompromising terms:
We . . . face a rebellious clique and a large number of the dregs of society, who want to topple our country and overthrow our party. This is the essence of the problem. . . . They have two main slogans: One is to topple the Communist Party, and the other is to overthrow the socialist system. Their goal is to establish a totally Western-dependent bourgeois republic. The people want to combat corruption. This, of course, we accept. We should also take the so-called anticorruption slogans raised by people with ulterior motives as good advice and accept them accordingly. Of course, these slogans are just a front: The heart of these slogans is to topple the Communist Party and overthrow the socialist system.12
Rarely has Deng revealed his fundamental assumptions as clearly as he did in this passage. He had not spent his adult life anchoring Communist Party rule to see it dismantled by student radicals. At the same time, however, Deng moved to ensure that the course of economic reform would continue. This reassurance was crucial.
Notably, Deng never repeated his 1978 flirtations with the prodemocracy movement. He named his program “socialism with Chinese characteristics,” and he seemed quite sincere in this. It all depends, perhaps, on one’s definition of socialism. For Deng, the word seemed to mean, above all, a system that could unify a notoriously fractious country; it did not refer to Maoist-style egalitarianism, the radical leveling of all differences. To the end of his life, Deng adamantly insisted that he opposed “capitalism.” And when the liberals began to express their longing for more democracy in the late 1980s, Deng issued a pitiless rejection. Some of his closest associates were brutally scapegoated, stripped of their posts and packed off into political neverland. Zhao Ziyang, the only Politburo member to vote against a military solution to the student protests, and who had visited the students in Tiananmen Square shortly before the crackdown, was stripped of his posts and relegated to house arrest.
The conservatives, whose influence had been rising even before Tiananmen, set out to brake China’s rush to the market. They lowered growth targets, tightened financial controls, and pushed for greater budget discipline. They even announced a moratorium on the construction of high-end office buildings and hotels. At a party conference in late 1989, Premier Li Peng declared that party controls over all matters ideological would be intensified.13 The SEZs, again, were at the forefront of the debate. The new emphasis on “patriotic education” and the ban on anything that smacked of “bourgeois liberalization” did not square well with the cosmopolitan allure of a place like Shenzhen. For a time, Deng was willing to concede ground to them. But he was not willing to backtrack completely.
Chen Yun seemed to have won the argument. He had always regarded the zones as “birdcages,” places where the rapacious spirit of capitalism could be exploited even as it was kept in safe quarantine. (It was Chen who had argued, when the first special zones were established, that “you have to be careful about opening the window—the flies and the mosquitoes will come in.”) His defense of planning and his critique of market mechanisms dominated the public discussion. The conservatives held sway over the media. Some of Deng’s key allies deserted him. This time, it seemed, Deng had exhausted his political capital. He was already in semiretirement. Another comeback appeared improbable.14
But then, in the winter of 1992, Deng announced that he intended to set off on a vacation in the sunny South. His special train stopped first in Shanghai, Chen Yun’s hometown. It was Chen’s memories of the 1920s and 1930s, when Shanghai’s economy was dominated by the foreign companies that retained imperial-era concessions there, that made him a staunch opponent of so-called comprador capitalism. In 1979 there had been talk of including Shanghai in the original group of Special Economic Zones, but Chen had quashed the idea. By the late 1980s, senior party officials were discussing plans to transform the Pudong district of Shanghai into a special zone designed to attract financial companies, alluding to the city’s prewar role as China’s banking center (a function that had since been assumed by Hong Kong). Chen continued to resist. But on his 1992 visit, Deng pressed the idea again, arguing that improved conditions for foreign banks could help to push economic development. His arguments were largely ignored by the national media—evidence, perhaps, that some in the party were already anticipating his retirement from the scene. If such expectations existed, they were soon to prove premature.
Deng’s train then pressed on to Guangdong Province. In Shenzhen he met with a rousing welcome from local party officials, who understood, quite accurately, that their own political fortunes were intimately connected with his. Deng toured factories and met with their workers, who gave him glowing accounts of the improved living standards and chances for mobility that Shenzhen offered. Deng viewed the zone’s first skyscrapers and inspected what had become, by now, its exemplary roads and port facilities. Shenzhen was producing goods to market around the world. It was also home to the first stock exchange in the People’s Republic of China, a remarkable sign of the spread of market norms. By this time, Hong Kong investors were employing 3 million mainland workers in the zone—three times more than in Hong Kong itself.15 The vast majority of these workers came from somewhere else in China, extraordinary evidence of social mobility in a country that had, for decades, tied people to their places of birth. As evidence of this shift, most Shenzheners spoke Mandarin, the national version of Chinese, unlike most Guangdong natives, who speak the local dialect of Cantonese.
There were many problems, too—precisely the issues that had made Shenzhen and the other SEZs targets of the opposition to reform. There were stories of drug use, prostitution, and widespread corruption. The fifty-mile fence between Shenzhen and the rest of the mainland served to prevent the capitalist mind-set from infecting China as a whole.16
But this was not what Deng chose to dwell upon during his visit. In speech after speech, he drew attention to the achievements of Shenzhen and the extraordinary speed of its development. At one point he recalled an early visit to the region: “I came to Guangdong in 1984. At that point, rural reform had been going for a few years, urban reform was just starting, and the special zones were taking their first steps. Eight years have gone by and I would never have believed that on this visit I would find that Shenzhen and Zhuhai special zones had developed so fast. Having seen it, my confidence has increased.”17
At first Deng’s speeches received coverage only from the Guangdong media, which celebrated his support for the province’s success. Guangdongers knew that Deng had played a crucial role in giving provincial government relative freedom from Beijing’s interference to push ahead with the economic experiments that had now borne such spectacular fruit. But the national media remained silent. Gradually, however, Deng’s sympathizers gained traction. It was only several weeks after his trip that most Chinese began to learn of Deng’s pilgrimage to Guangdong and to hear for themselves his forceful arguments in favor of continued opening to the world. The images of Shenzhen’s soaring towers and turbocharged factories resolved the hesitations of many party members who had been wondering whether the march toward the market was a good idea. Deng’s 1992 trip—which came to be known as the nanxun, the “Southern Tour”—galvanized the economic reformers and enabled them to gain a crucial edge over their opponents. It also dramatized the extent to which the Special Economic Zones had become the frontier of China’s market experiment. The Chinese never looked back.
The reforms that Deng and his party comrades unleashed in 1979 have been described as the largest poverty-reduction program in human history. This is just. Over the past three decades, China’s embrace of markets has lifted hundreds of millions of people out of impoverishment. As one of Deng’s biographers notes, China’s trade with the world totaled less than $10 billion in 1978. Over the next three decades, it expanded a hundredfold.18
This has not gone unnoticed in the rest of the world. China’s success has been a major factor in the global “market revolution” and the rejection of collectivist approaches to economic development. To be sure, the Chinese model has retained a large role for the state; the government still steers many investment decisions through the vast Communist Party bureaucracy and the state-dominated financial sector. Yet for many of those around the world who admire China’s success, it is precisely the rejection of state planning that is most worth emulating. China’s runaway growth—9 percent per year—represented yet another persuasive argument for the power of markets and the failures of central planning. “Having become accustomed to being harangued by the Chinese for their lack of Marxist ideological purity, Third World socialists watched in disbelief as in the 1980s China itself embraced the market with almost pornographic enthusiasm,” writes historian Odd Arne Westad. The fact that the Chinese managed to adopt this market-driven system while rejecting the accoutrements of democracy and retaining one-party control made it even more attractive to many countries where the elites were not prepared to relinquish their privileged political status.19
In this respect, it seems safe to say that it was Deng Xiaoping, the man who devoted his life to the ideals of Communism, who has done more than any other individual to ensure its demise as an idea.